Gas Power Stations in Norway: Environmental Policy or Political Power Game?

In many respects, Norway is not like other countries. It is large, sparsely populated, very rich, mountainous like Switzerland, oil-exporting like Kuwait, and has a citizenry which, in many instances, wants to see rather more than less state involvement in its affairs. And for the last two years the country had a government, under Kjell Magne Bondevik, formed by a coalition of three political parties which together had less seats in the Storting, the Norwegian parliament, than the Labour Party on its own, the dominant political party in the post-war era. At the beginning of March, the Bondevik government finally lost the fragile support it had enjoyed for a surprisingly long time in the Storting, and a Labour Party government under Jens Stoltenberg moved in to end the anomaly, which the minority government clearly was.

But how did the shift come about? Rather remarkably, the Bondevik government did not falter on big issues such as the labour market, health, or tax reform, which provide ample fire for the political debate in Norway, but on the simple question of whether an existing permit for the building of one or two gas-fired power stations should be amended. It should be noted that this issue completely occupied newspaper headlines and editors’ columns at a time when nobody with normal financial objectives would have wanted to build such a power station, because electricity prices in the Nordic pool have been unusually low for some time, and liberalisation in Scandinavia (and further South in Europe) has shown that considerable excess capacity exists.

Of course, we are not the only observers to note that the power stations might not have been the real issue. Norway might well be like other countries after all. But first consider the issue of the power stations. Jens Stoltenberg, the new prime minister, already appeared on national TV some five years ago, when he was still Minister for Petroleum and Energy, standing on a wind-swept plateau on the western Norwegian coast, and predicted that two or three years hence he would walk through the gleaming halls of a new gas-fired power station at the same place. A discussion over the environmental consequences of the power stations has been raging ever since with varying intensity.

All electricity currently produced in Norway comes from hydropower, and hence is emission free. Gas-fired power stations would mean a considerable increase in greenhouse gas emissions, at a time when politicians and the public are increasingly aware of the climate change issue. Through the Kyoto Protocol, the country is obliged to reduce greenhouse gas emissions below the 1990 baseline; this would place a heavy burden on the transport sector which is their major source. A sizeable increase in emissions from another source is understandably unwelcome at the time. That is also why, in a country which, contrary to casual observation, is still mildly committed to free enterprise, a building permit for power stations could not be withheld, but was given with extremely stringent emission restrictions. In practice this meant either that something altogether different from natural gas would have to be burnt, or that the CO2 from the burning of natural gas would have to be injected into an off-shore oil reservoir, as suggested in 1998 by Norsk Hydro. The targeted oil field however fell victim to the Norwegian oil production cuts in the wake of production restraint by OPEC and Mexico, and Norsk Hydro had an easy way out of a difficult situation: they did not have to prove that they could in fact build a no-emission power station at reasonable costs, which they probably could not.

So far, so good, if it the story only involved Norway. The problem is that the country’s hydropower has for some years been insufficient to fill Norwegian demand for electricity. Increasingly therefore, electricity is imported, some from Sweden, and even more from Denmark. Swedish electricity mainly comes from nuclear power stations, something the environmentalists in Norway view with dismay. However, the nuclear power stations in the neighbouring country are on their way into decommissioning, which throws up another development altogether: electricity prices in Sweden will probably increase, which will make it a more expensive supply source. But electricity in Denmark is produced to a large extent in old coal-fired power stations: every environmentalist’s nightmare. And now the Norwegian dilemma becomes obvious: the stringent emission restrictions in the Kyoto Protocol may imply no new electricity generation in the country, and thus can lead to higher imports of coal-generated electricity from Denmark.

Proponents of new gas-fired power stations, among them Jens Stoltenberg, point out that it is environmental hypocrisy, or national myopia, not to build the power stations, and to import electricity instead. Opponents point out that it is not clear at all that new power stations in Norway would lead to lower emissions in Denmark since electricity consumption in Denmark or Norway could go up, the Danes could export to other countries, etc. And in any case, as new electricity would not be needed for some time low-emission technology could be given a chance.

Let us move away from the reality of Danish and disputed Norwegian power stations. If we were dealing with one country, the decision would be easy: gas-fired power stations emit much less CO2 for the same amount of electricity produced, than coal-fired generation. The difference could be as high as 40 per cent. The country could therefore reduce greenhouse gas emissions by building gas-fired power stations, and closing down coal-fired capacity. If the two fuel options had the same generation costs (which they usually do not have, i.e. gas is a cheaper source of electricity in most countries), environmental policy could give the right signals by imposing a carbon tax, in fact a relatively small tax may well be sufficient.

Let us now for a moment assume that the Kyoto Protocol is ratified by the EU and by Norway, even if no other major country joins in. And let us further assume, with a leap of faith, that some economic sense prevails in the implementation of emission restrictions, and international permit trading is adopted. Danish and Norwegian emissions then come under a common umbrella. Coal-fired generation in Denmark becomes very expensive, because of the heavy emission penalties it incurs, equivalent to a significant carbon tax. Gas-fired power stations, with considerably less CO2 emissions, therefore gain in competitiveness. Gas power generation in Norway is cheaper than in Denmark, because it saves on transport costs on gas and electricity to and from Denmark, respectively. The question whether building permission should be given becomes as easy to answer, as if Norway and Denmark were one country: the answer is yes. Norwegian emissions would increase: yes. Norway would have to pay for additional emission permits: yes. But this would still be cheaper than importing Danish coal-generated electricity, and the Danes would close down their old coal capacity.

This is the credo of economists lobbying for international emission permit trading: nationalistic responses to the global problem of greenhouse gas emissions and climate change should give way to international approaches. Emission reductions are then achieved where it is cheapest to do so, and not where national boundaries dictate. This lowers the overall costs of reducing emissions, which means it becomes easier to achieve more reductions. It does not mean that rich countries get away with high emissions, while the poor suffer from emission restrictions: Norway would pay for emission permits, but it would pay less than for electricity imports from Denmark.

By the time anybody would want to build power stations in Norway, i.e. when electricity prices have risen sufficiently to warrant new investment, we will probably know whether Kyoto will be ratified, and whether emission trading will be used for its implementation. Until then, the issue of building permits for gas-fired power stations is a non-issue, at least from the environmental, or indeed energy-policy point of view. In contrast, the issue of lobbying and negotiating the framework for emission trading is an important one.

The suspicion is that the political actors in Norway knew this very well. They also knew that Jens Stoltenberg was bursting with anger that other parties were governing the country, although his was the strongest party in parliament. He was eager to take the reins in his own hands, and was appointed Prime Minister in waiting by the Labour Party in early February. And the next thing the politicians knew was that the non-issue of gas-fired power stations had to be resolved there and then. We all now know that Norway is indeed like other countries, at least when it comes to the political power game.